Kelsonians versus Economists

I. Summary and Recommendation, April, 2001

The announced purpose of a separate place for considering the Economics of Ownership was to increase the participation of professional economists in discussion of the subject. At this point, that mission cannot be credited with success, for there are fewer active economists participating than in the first couple of months of the exchange. Nonetheless, considerable light has been shed on one of the main questions with which we began. That is, why have accredited economists not been more actively involved in evaluating and acting upon the legacy of The Capitalist Manifesto and related works by Louis Kelso? It seems reasonable to suppose that exchanges between economists and Kelso’s disciples provide at least a partial answer, and the record of that interaction accounts for most of the content of the Ownership archive.

The answer has become more clear and firm with passage of time, but its general nature was signaled very early on. The disciples of Kelso believe that he provided not only an important set of policy innovations but also a revolutionary development in economic theory. Oral tradition has it that Kelso himself had a prickly relationship with economists, and the carriers of his message seem to have been influenced by that experience to expect negative reactions from their own encounters with the profession. (Note that by ‘profession’ I intend membership in a peer-defined group, not simply the taking of pay for work deemed “economics” by the customer. This distinction is explained more fully in the text.) If our experience is representative, the nature of the disagreement concerns the degree of novelty in Kelso’s theory and the concomitant degree of impact on targeted variables. Economists who participated in our discussion generally agreed that Kelso’s policy objectives were desirable and that his prescriptions would have an impact in the desired direction. They have withheld judgment on the magnitude of impact, however, pending a more complete explanation of the theory than its proponents have been able to supply.

An important source of communication difficulties has been the relative innocence of establishment economics manifested by Kelso’s proponents, combined with their adamant confidence that his “binary economics” is superior in theory^[1] and in policy impact. This gap was tenuously bridged by the late appearance of a Kelsonian enthusiast who has made the effort to learn standard economics and to translate the problematic elements to the satisfaction of peer reviewers.^[2] Early reactions suggest that his mediative effort may be inadequate to satisfy binary colleagues, however. After this lengthy gestation, it seems that the most troublesome issue is the wish of binary economists to believe in more roseate possibilities than dismal scientists can find in their theory and policies. It seems unlikely that a continuation of exchanges between the two groups will be fruitful in the near future. I therefore recommend that a separate site be established for those who wish to work on further refinements to the binary doctrines, and that the moderator of the Economics of Ownership discussion be given the technical means to screen contributions.

II. A Skeletal View of the Points at Issue

Three principal tenets of binary economics are 1) the productiveness of capital, 2) binary growth, and 3) the binary property right. By “productiveness” the binary economists call attention to the point that more and more of the physical work required to satisfy human wants is actually performed by intelligent energy slaves and other forms of “capital” (non-human but humanly contrived adjuncts to production other than money or financial assets). The value of total output is much more limited than it might be, however, because capital is under-employed in virtually all production systems. This under-utilization of capital relative to labor is an institutional defect that could be remedied by Kelso’s policy prescriptions, which include financial techniques, taxation and monetary policy elements. Were these policy changes implemented, say the binary proponents, economic growth would be very much greater than is ever achieved through conventional macroeconomic policy variables, which focus on human rather than capital employment. Given this forecast of potential abundance, enthusiasts for the Kelso vision draw the moral inference that the policies ought to be implemented, and make this normative judgment a part of their “theory” (the binary property right). (They have apparently failed to notice that the policy measures typically applied in the aftermath of Keynes and the Employment Acts of the 1940s are not part of the theory itself but are rather inferences from it drawn by means of an intermediating moral judgment.)

As Kane has emphasized in his article, the distributional emphasis in the Kelso system is on the means of production, in contrast to distributing the final output on the basis of factor proportions used to produce it. It seems that Kane would admit (in contrast to most of his binarian colleagues) that labor may in fact contribute more than capital to final output, under the current system, but that it ought not, and that under a Kelsonian regime it would not. Relatively more capital should be used in the productive mix, according to this view, and with the Kelsonian reforms in place, more of it would be. This is the “homestead” principle, and its meaning in a post-industrial economy is equitable access to the financial instruments which allow individuals to get their hands on a share of the productive capacity. Democratic capitalism. An important part of the growth benefit from adopting the Kelsonian system would be the concomitant dismantling of the behavioral and structural features which have grown up under the post-Keynesian policy mentality and which contribute gross inefficiencies, corrupt practices and injustice.

As described by Kane, the binary program suggests at least two questions which should capture the interest of economists. (1) Is the ratio of labor to capital that is observed historically really the consequence of contrived scarcity (of capital) as Kelso suggested, or does it reflect either a technological constraint or some limitation of human and social adaptability? (2) How might we go about estimating the efficiency benefit that Kelsonians anticipate from breaking up the old system of income distribution based on labor employment and its government supplements? These questions are important tests of Kelso’s claim to be an innovator in economic theory. That he proposed striking policy innovations is beyond doubt, but as Kane has demonstrated, they can be clarified and discussed in terms of analytic devices developed in conventional economics. The theoretical novelty seems to be confined to the technological relationship between capital and labor and the thesis of artificial capital scarcity.

Kane’s article has cleared up much of the fog that enveloped earlier struggles over the meaning and importance of the “productiveness” issue as it differs from conventional notions of production and productivity. Economists were inclined to discount it as a non-essential argument and to get on with questions that seemed to bear more directly on application of the prescriptions and estimation of their likely impact. Binarians have been adamant that the difference is important, however, and Kane has finally provided a plausible explanation of the links to binary growth. This is a critical beginning, but much remains to be done before the magnitude of impact can be estimated with much precision.

The cautious position of the foregoing paragraph is really the best that can be offered by economists as a professional group, but it has been the source of much frustration to Kelso enthusiasts, vented not infrequently in exasperated vituperation and cursing at economists as the architects of human misery.

III. Beliefs and Partisanship versus Analysis

Two features stand out from early months of this forum: (1) The overt political, even evangelical, attitudes and objectives of Kelso’s disciples, and (2) their aversion to analysis of the “binary theory” while at the same time insisting on its importance. This attachment of purists to their theory seemed mysterious, for in spite of their failure to make a reasoned case for it, others were willing, on grounds of a different explanation, to endorse the objectives and evaluate the techniques. What appeared at the outset to be an innocent request for clarification on the link between “binary economic theory” and the Kelso techniques turned into our major issue, with questioners complaining that they still don’t get it and proponents fuming that the unenlightened are either intellectually benighted or deliberately, even malevolently, obtuse.

As moderator, it seemed to me appropriate to point out to some participants in the discussion that they were behaving as the promoters of a political faction or even of a religious cult rather than as objective analysts of a neglected theory. This tweaking evoked outrage but no discernible improvement in behavior, suggesting the hypothesis that they are simply ignorant of the conventions of civilized discourse (of public knowledge in the sense described below by Ziman). The recent contributions of Stephen Kane lead me to reverse my conclusion of last fall that the binary theory is the probable cause of Kelso’s failure to win support from economists and other analysts who have evaluated his financial techniques and political vision. It now seems more likely that Kelso was too satisfied with the completeness of his exposition, and especially that he did not inspire his disciples with the need to do their homework in economics theory and practice.

I remain contented with my interpretation of last fall that binary economics is a belief system which has been elevated to a near-sacred status by some of its adherents. The central feature of the belief has become more clear in recent months, however. It now appears that the motivating ideal is the concept of technological utopia fostered by the creative imagination of Buckminster Fuller. This is the view of “binary growth” that some believers have affirmed in recent months. The institutional reforms designed by Kelso are conceived as adequate social engineering to realize the physical possibilities, and the binary theory is the icon or mantra for rallying troops to the cause and in testing the strength of their allegiance. Believers find it fully persuasive, and are incredulous and angry when others find their explanations incomplete, obscure or defective. The motivations of the pesky questioner are impugned, and the usual accusation is that the unpersuaded have been spoiled by study of economics, of which the enthusiasts are innocent. This, I believe, should be interpreted as a warning sign of a short-circuit in binarian thinking: the social means for realizing utopia are the hard part. In fairness to B. Fuller, he seems to have been quite aware of this.

IV. Intellectual Barbarism of the Binary Partisans

From the outset of this forum, I have been reminded almost daily that one of my principal reasons for attaching credibility to Kelso was his influence on Mortimer Adler. And every time I have thought of that connection it has reminded me that Adler once wrote a column in Newsweek in praise of one of my favorite books, The Revolt of the Masses. And the thing that has kept the book on my mind is the regular encounter in this forum with the subject of the book–the mass-man, described by Jose Ortega y Gasset as an intellectual barbarian who wishes to promote his opinion without first establishing his right to be heard in a civilized community. No doubt that last phrase has the ring of “un-American” heresy in some ears, so I should let the author explain himself. It is tricky business to select only a few sentences from a complete book devoted to the theme, and some that I have hitherto quoted have already proved to be inflammable to some participants in this discussion. Their pertinence is nonetheless unavoidable for any who wish to understand the nature of our defining problem: “Why have economists as a group given so little attention to the Kelso innovations?” (Keep in mind that the book was written in 1929, when fascism was on the rise in Europe.)

[F]rom the very opening-out of the world and of life for the average man [the accession of the masses to social power in Europe], his soul has shut up within him. ... I know well that many of my readers do not think as I do. This also is most natural and confirms the theorem. For although my opinion turn out to be erroneous,...many of those dissentient readers have never given five minutes’ thought to this complex problem. But by believing they have a right to an opinion on the matter without previous effort to work one out for themselves, they prove patently that they belong to that absurd type of human being which I have called the “rebel mass.” It is... what I mean by...intellectual hermitism. The individual finds himself already with a stock of ideas. He decides to content himself with them and to consider himself intellectually complete. ...

The mass-man regards himself as perfect. The select man, in order to regard himself so, needs to be specially vain. ...[T]he vain man stands in need of others, he seeks in them support for the idea he wishes to have of himself. ...Contrariwise, it never occurs to the mediocre man of our days...to doubt of his own plenitude. ...We find ourselves, then, met with the same difference that eternally exists between the fool and the man of sense. The latter is constantly catching himself within an inch of being a fool; hence he makes an effort to escape from the imminent folly, and in that effort lies his intelligence. The fool, on the other hand, does not suspect himself... .It is not a question of the mass-man being a fool. On the contrary, today he is more clever, has more capacity of understanding than his fellow of any previous period. But that capacity is of no use to him... .[H]e accepts the stock of [ideas] which chance has piled up within his mind, and with a boldness only explicable by his ingenuousness, is prepared to impose them everywhere. This is...the characteristic of our time; not that the vulgar believes itself super-excellent..., but that...[it] proclaims vulgarity as a right. ...[I]n European history up to the present, the vulgar had never believed itself to have “ideas” on things. It had beliefs, traditions, experiences, proverbs, mental habits, but it never imagined itself in possession of theoretical opinions on what things are or ought to be–for example on politics or literature. ...Today, on the other hand, the average man has the most mathematical “ideas” on all that happens or ought to happen in the universe. ...There is no question concerning public life in which he does not intervene, blind and deaf as he is, imposing his “opinions.” (There is no getting away from it; every opinion means setting up a theory.)

But...is it not a sign of immense progress that the masses should have “ideas.”..? By no means. The “ideas” of the average man are not genuine ideas, nor is their possession culture. An idea is a putting truth in checkmate. Whoever wishes to have ideas must first prepare himself to desire truth and to accept the rules of the game imposed by it. It is no use speaking of ideas when there is no acceptance of a higher authority to regulate them, a series of standards to which it is possible to appeal in a discussion. These standards are the principles on which culture rests. ...There is no culture where there is no acceptance of certain final intellectual positions to which a dispute may be referred. (If anyone in a discussion with us is not concerned with adjusting himself to truth, he is intellectually a barbarian. That is in fact the position of the mass-man when he speaks, lectures or writes.)...When...these things are lacking there is no culture; there is in the strictest sense of the word, barbarism. ...Barbarism is the absence of standards to which appeal can be made. ...

To have an idea means believing one is in possession of the reasons for having it, and consequently means believing that there is such a thing as reason, a world of intelligible truths. To...form opinions is identical with appealing to such an authority, submitting oneself to it, accepting its code and its decisions... .But the mass-man...instinctively repudiates the obligation of accepting that supreme authority lying outside himself. ...[Thus] the normal processes [of culture] are suppressed in order to arrive directly at the imposition of what is desired. [Intellectual ] hermetism...leads [the mass] to one single process of intervention: direct action. ...

Civilisation is...the will to live in common. ...Barbarism is the tendency to dissociation. ...The political doctrine which has represented the loftiest endeavor towards common life is liberal democracy. ...[However] it is a discipline too difficult and complex to take firm root on earth.

The mass...does not wish to share life with those who are not of it. It has a deadly hatred of all that is not itself.

These attributes of barbarism seem to be reflected in the following positions reiterated regularly by binary economists over the course of our 18 month discussion: (1) Denial that a useful body of knowledge exists under the label of “economics” as it is presented, e.g., in colleges and university departments of economics around the world; (2) an assertion that they have in “binary economics” both a comprehensive system of analysis and the blueprint for an ideal commonwealth; (3) deliberate, unapologetic ignorance of standard economics and an inability to explain problematic parts of the binary theory or to fill in missing pieces when requested by sympathetic and patient economists or other social scientists, with the result that they are (4) unable to explain why and how the binary theory is superior to conventional economics, (5) relying instead on a claim that “if our system were tried, you would see huge material benefits to currently underprivileged peoples”; (6) consistent with these other features, a stubborn unwillingness or inability to differentiate between the doctrinal props of a political-economic policy or program and the analytical procedures used by economists to evaluate proposed or existing policy structures; (7) given the foregoing, a refusal to acknowledge the possibility of a rigorous approach to truth-seeking in respect of economic policy analysis–by any other means, that is, than simply accepting the “truth” of the binary nostrum which is evident to all but fools and tools of the devil (i.e., social analysts); (8) criteria of truthfulness which amount to counting up disciples and measuring the volume of oral affirmations. In a striking reinforcement of the yawning chasm between the two groups (9) binarian economists complain that social scientists insist on critical analysis of the binary program rather than putting forward attractive policy proposals of their own. Metaphorically, “get in this beautiful boat with us and help us row to the island of Techtopia, out beyond the horizon. Stop beating your gums about the leaky hull and incomplete charts; save your breath for pulling on that oar.” And to underscore the final lines above from Ortega y Gasset, the binarians have recently given vent freely to their hatred of economics, economists and social scientists

There was some ambiguity about the binary position in early stages of our forum, for they obviously wished to present their case as one of scholarly and even scientific respectability. They trumpet it as a "scientific revolution” without having bothered to immerse themselves in the literature which explains the guarded meaning of that phrase. In particular, they have eschewed (Richard Stutsman excepted) the painstaking efforts to adapt successful methods of the natural sciences for productive applications to social phenomena and problems (personified by Karl Popper). Later contributors, John Medaille in particular, have been more candid in acknowledging the starkly political nature of the binary campaign Virtually all of those who have taken a prominent part in our forum as proponents of binary economics have recently joined this chorus, dismissing serious analysis as just an annoying impediment on the way to realizing the beauty of truth.

John’s scornful dismissal of Stephen’s translation of Kelso’s unfinished ideas into concepts that economists can begin to evaluate is a straightforward expression of barbarism as defined above. His position that “credentials don’t count” is obvious nonsense in the context of civilization where rule of law holds sway, requiring credentialed specialists of many kinds to protect property and personal rights. John is right, however, when the context is rabble rousing and revolution; then it is indeed poetry, sophistry and other appeals to emotion that carry the day. Cool reason is not the stuff of revolution. The tacit approval of his allies, most of whom appear to be lawyers (and what group would know more about the importance of credentials?), reinforces the mass-movement nature of “binary analysis.” From the very outset of this forum, the main proponents of binary economics have (1) reacted indignantly to any critical comment about the completeness or accuracy of their doctrine and (2) embraced as a voice of enlightenment anyone who offered praise or affirmation of their campaign slogans, regardless of the quality of their arguments or the turgid prose of their “literary endeavors.” These are the reactions and tactics of the party caucus, the religious establishment, the Mafia boss, NOT the features of liberal democracy or the spirit of science as truth-seeking for humanitarian ends (see lines quoted below from John Ziman).

V. The Norms of Science as the Flower of Civilization

Credentials do count. Because they imply standards, they are one of the principal building blocks of the modern age. Science and capitalism have a common history. Professionalism has been an essential feature of the phenomenon. The rise of the professions in the break-up of feudal order and the beginnings of modern times is described in the essay by N.S. Morgan on the COG Library. As money rather than horses, armor and services in kind (a self-sustaining knight on horseback ) became the critical resource, accounting was one of the first professions needed by the possessors of power. Kings and Dukes, Bishops and Barons needed help they could count on; expertise, qualifications, reliability. It was only much later, with the rise of the nation-state, that ideas of political economy were recognized as an important adjunct to the ‘political arithmetic’ contributions of the tax-gatherer, counting house and chancellor of the exchequer. (Note that ‘professionalism’ as I use it here means, in Ziman’s phrase, common adherence to the norms of the consensus group, rather than pay for doing research.”)

Some forty years after Ortega y Gasset raised his alarm about the breakdown of European civilization into the barbarism of the mass-man (amply justified, as it turned out), a distinguished British physicist wrote an exposition about science as a social enterprise. Without using the precise phrase or even discussing it in terms of politics, his essay portrays science as the virtual epitome of civilization (even of liberal democracy) and the antithesis of barbarism. Quotations that follow are from John Ziman, Public Knowledge: An Essay Concerning the Social Dimension of Science. Cambridge University Press, 1968. The author is identified as Professor of Theoretical Physics, University of Bristol, and a Fellow of the Royal Society. His exposition reflects a thorough understanding of major works by Popper, Kuhn and Michael Polanyi, which were standard in philosophy of science at that time. I experienced it as a source of consolation in the final stages of preparing a dissertation which denied the legitimacy of an analytic technique used and recommended by my examiners and their professional peers.

The convention is that the scientific community consists of those persons who are able to speak its language. If you wish to pronounce upon a scientific matter,...you must show that you are already acquainted with current knowledge in that field of study. To change the consensus, you must, paradoxically, demonstrate that you understand and accept it as it is. Generally speaking, this means that you must have suffered many years of education in the subject, and almost invariably that you have passed a series of examinations, culminating in a Ph.D. ...

It is quite evident, therefore , that certification as a competent scientist is entirely in the hands of the existing Establishment. The teachers, examiners and referees are all ‘authorities’–well-meaning no doubt, but incapable of treating a genuine unorthodoxy–a revision, say, to Lamarckism, or non-relativistic physics, or deterministic electron theory–as better than a mental aberration. Pp. 64-5

The conventional ticket-of-entry to a science implies the prior existence of a substantial subject matter on which consensus has been achieved. It can only be used for a discipline in its ‘normal’ well-developed phase. At the beginning of any science the whole situation is much more fluid. In the era of discovery...it may actually be advantageous not to have been well indoctrinated in the complacent fog of contradictory ideas that passes for received opinion upon the topic in question. P. 67

In these circumstances the major task, and the corresponding problem of scientific education is easily defined; it must teach the consensus without turning it into an orthodoxy. The student must become perfectly familiar and at ease with the current state of knowledge and yet ready to overthrow it, from within. He must be carried past all the mental barriers that impeded his ancestors, and yet be ready to jump off, and push for himself when the frontier is reached. P.69

QUOTE What are we to make of the so-called ‘Social Sciences’ in the light of this discussion? It is obvious that such a subject as Politics is very close to History and to Philosophy in its goals and achievements; to stick to ascertainable public ‘facts’ is to limit the discourse to the banal. To give this discipline the name of Political Science is unfortunate; it offers more than it can deliver and debases its ethical message.

On the other hand, Economics is a very technological subject; the experts are always being asked to diagnose ills...and propose specific cures, long before they have sufficient scientific understanding to make a valid analysis. Yet the totally quantitative material medium–money–allows of convincing proofs...of precise hypotheses, so that a body of agreed principles is gradually emerging. ...American and Soviet economists respect and learn from each others’ work on Input-Output Analysis, however much they may disagree on more speculative issues of general social policy. ...

Sociology...is an attempt to escape from the ‘unscientific’ traditions of History and Politics, and to make the study of social systems, and of man in society, at least as scientific as Economics. ...Sociology is often genuinely scientific in spirit, although it has turned out to be an exceedingly difficult science whose positive achievmenets do not always match the effort expended on it. The ‘methodological problem’...[is of ] the sort...facing Physics before Galileo began seriously to apply mathematical reasoning and numerical measurement to the subject. The idea of a consensus is there, but the intellectual techniques by which it might be created and enlarged seem elusive. ENDQUOTE (pp. 26-27)

Proponents of the binary alternative have declared their contempt for economics in its established form. That is their right within a political regime of free speech and free thought. No one contests their right to spread a new political doctrine, and they may call it “binary economics” if they wish. But if anything has been settled by this Economics of Ownership discussion, it is that with the exception of Stephen Kane, their opinions about Economics do not merit standing in a forum where deliberate effort to establish reliable knowledge is the objective.

VI. Recommendation Re the COG Virtual Think Tank

If there is to be useful progress in exploring the Economics of Ownership, there should be a public commitment to maintain standards of the kind described above in material quoted from Ziman (which is of course not the only source of such sentiments). Then the moderator should be given the technical means to screen proposed contributions which do not meet that standard. This will mean the exclusion of much that is submitted from the binary economics perspective, which is quite appropriate given that the main proponents of that point of view have also made clear their contempt for Economics and the conventions of social science discourse. However, since binary economists are strong proponents of capital ownership, it may be appropriate that they have a place in the Virtual Think Tank to develop their own ideas. They might be given their own site, for binary economics, where they can put effort into learning enough Economics and principles of scientific procedure that they can get their ideas past a sympathetic review committee. The current arrangement is no longer helpful to either the Economics of Ownership or to the refinement of the binary doctrines. I make the suggestion of a separate site for the binary proponents with some hesitation; should the financial supporter of the Virtual Think Tank or its custodians be complicit in fanning the flames of barbarism?

^[1]Core tenets of binary economics are described briefly in Appendix I. For more complete exposition consult the summary of Kelso and Adler, The Capitalist Manifesto written by David Spitzley on the COG library http://cog.kent.edu/Author/Author.htm.

^[2]Stephen Kane. His article, published in the Journal of Socio-Economics, is reproduced in the COG Library, op.cit.